Dealing with Debt After a Divorce

Worst has come to worst and your marriage is coming to an end.

Among the many decisions you’ll need to make — and hopefully avoid clashing over — is the disposition of debts incurred during the marriage. In all frankness, the best method of dealing with debt after a divorce is to have paid it off before the divorce.

You’ll need to consider the following if that isn’t possible.

Credit Cards

If your spouse applied for the cards before you were married — even if you were listed as an authorized user — that person is solely responsible for the disposition of any debts created using them. However, you will both be expected to satisfy the obligation if you applied jointly — regardless of your marital status at the time.

The community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) assign equal responsibility to debts acquired after the date of marriage and before the date of separation. That includes credit card debt — even credit card debt that is only in one spouse’s name.

With this in mind, it’s important to close out — or get your name removed — from any jointly held accounts while the marriage is ending. That might mean balance transfers to other cards, or taking a consolidation loan. Otherwise, you could find yourself on the hook for a post-divorce spending spree.

Home Loans

Your choices are to buy the other person out, or sell the property, pay it off and split whatever’s left afterwards if both names are on the mortgage. You’ll need to work out an agreement to keep the mortgage paid up until things are finalized in estrangement situations. You’ll still be expected to pay the mortgage, even if you don’t live there.

The house will typically be awarded to the spouse most capable of servicing the loan after the divorce if it goes into the proceedings contested. However, the spouse awarded custody usually gets the house too if kids are involved — with the caveat they buy the other spouse out.

It’s usually best to ask the mortgage holder to remove the other person from the loan agreement. Your best option might be to refinance the property, without the other party being listed on the loan if they won’t do it.

Car Loans

Freedom Debt Relief reviews sometimes cite instances of people falling into insurmountable debt when a spouse refuses to hold up their end of joint loan agreements. Sometimes partners just stop paying and let things go without informing the other party. Before they know it, they’re looking at Himalaya-sized debt. This unfortunate instance can happen on everything from credit card debts to personal loans and beyond.

Thinking specifically in terms of car loans here, it’s best to approach the lender and ask to be removed from a car loan if you aren’t going to keep the car for yourself after the divorce. Otherwise, you’ll need to be prepared to make the payments on your own. Given there’s little incentive for a divorced spouse to continue paying for a car they don’t drive, you’ll need to figure out a way to cover it on your own to protect yourself.

Post-Divorce Bankruptcy Filings

One of the most important reasons to get things sorted out before or during the divorce proceedings is the fallout of your spouse’s bankruptcy filing involving jointly held debt could land in your mailbox.

Said differently, creditors could come looking for you to pay it off if you have joint accounts and your former spouse files bankruptcy — but you don’t.

With all of that in mind, dealing with debt after a divorce is actually the wrong way to go about it. Dealing with debt before a divorce is the best approach to ensure your finances sustain the least damage possible.